The biggest challenge ahead is the United States: specifically, president-elect Donald Trump’s quest to radically change American trade policy
far greater than usual. Not so much in Canada, though the reality of a federal election by no later than October will start to dominate attention by late summer. And at this point, the result already looks like a foregone conclusion. Bank of Canada policy is rather clear-cut in the sense that the easing cycle is very likely going to continue, given the state of the economy and the fact that the disinflationary output gap shows further signs of widening.
But the biggest challenge ahead is the United States: specifically, president-elect Donald Trump’s quest to radically change American trade policy in a way that would make his initial tariff-happy tenure from 2016 to 2020 look like a walk in the park. There is no doubt the size of the tariffs he is talking about would send Canada and Mexico, the only two countries on the planet that ship more than a 20-per-cent share of GDP to the United States, into a deep recession.
The biggest of the high and rising risks ahead, principally the one thing Mr. Trump can do independently, is an epic hike to tariffs, with his proposals of up to 60 per cent on China and a blanket 20 per cent for everyone else. We really shouldn’t underestimate how important this is to the president-elect as an old-style mercantile industrial policy, nor should we underestimate the responses by other countries.
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